This CLE course will provide tax attorneys and accountants with a detailed discussion of best practices for requesting relief from IRS penalties because of failing to timely file required international information forms such as Forms 5471, 5472, 3520, 3520-8858, 8865, 926, and the FBAR. The panel will discuss the current trends in seeking relief from the imposition of such penalties by the IRS and will guide advisers on drafting abatement requests. Listen as our experienced panel provides best practices for documenting and filing requests to reduce foreign tax penalties and options for amnesty programs including the Streamlined Filing Compliance Procedures and Delinquent International Information Return Submission Procedures.
Principles
- Understand the Penalty Exposure
- Foreign information reporting failures can trigger substantial penalties, often on a per-form, per-year basis.
- Advisers need to identify the applicable forms, filing years, penalty amounts, and whether continuation or willfulness provisions could increase exposure.
- Build the Abatement Request Around Reasonable Cause
- A successful penalty-abatement request should do more than assert that the taxpayer made a mistake.
- The request should establish reasonable cause, explain the taxpayer’s facts and circumstances, demonstrate ordinary business care and prudence, and address why the failure occurred and how it was corrected.
- Document Before You Draft
- Effective abatement requests depend heavily on contemporaneous and supporting documentation.
- Advisers should assemble evidence concerning the taxpayer’s filing history, reliance on professional advisers, communications, discovery of the error, corrective actions, and procedures implemented to prevent recurrence.
- Match the Remedy to the Facts
- Penalty abatement is not the only potential path to compliance.
- Advisers should evaluate alternatives such as the Streamlined Filing Compliance Procedures and Delinquent International Information Return Submission Procedures, while considering eligibility requirements, potential penalties, and the taxpayer’s broader international tax situation.
- Treat IRS Relief as a Strategic Process
- The quality, organization, and timing of the submission can materially affect the outcome.
- Practitioners should develop a clear narrative, identify the specific penalties for which relief is requested, provide targeted legal and factual support, and anticipate how the IRS may evaluate the request.
Syllabus
- Tax reporting of international accounts and activities is complex, and failure to file foreign tax information forms may lead to potentially ruinous penalties. The IRS continues to focus its attention and resources on international tax compliance reporting
- The Internal Revenue Code sets penalties for failure to file Form 5471 at $10,000 per year per form, and the Form 5472 penalty has been increased to $25,000 per return per year. Those penalties can be increased for certain continuation failures up to $60,000 for Form 5471 and an infinite amount for Form 5472
- The penalties for failure to file the FBAR (FinCEN Form 114) range from $10,000 per year for non-willful failure to file up to the greater of $100,000 or 50 percent of the account balance at the time of the violation for willful noncompliance. Multiple penalties may be assessed annually based on the number of unreported foreign accounts
Instructor
Austin C. Carlson, JD, CPA
